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Department stores - technology holds the key to survival

ISG takes a look at the future of department stores and how technology can help evolve this troubled store format.

The department store was once king of the high street, a shopping mecca which brought everything consumers could possibly want together in one place. But today, the rise of internet shopping and the endless ‘aisles’ that the online experience offers is undermining the value of department stores and challenging their very business model.

Department stores are increasingly finding they need to offer consumers something extra to remain relevant. If they can’t give consumers a compelling reason to shop in-store, or incentivise them to do so, they will very quickly become redundant.

The death of the department store?

The death of the department store has been widely discussed, with a number of reputable brands announcing Company Voluntary Arrangements (CVAs) as a result of their failure to adapt their business models to fit a changing retail landscape.

Ensuring that department stores remain relevant to consumers is essential for survival, as is their need to possess an inherent strategic differentiator. In the absence of a unique product, they can redefine themselves by focusing on distinctive offerings, for example providing excellent customer service, offering extended warranties, employing staff with expert product knowledge, delivering a luxury shopping experience, or developing new in-store innovations. 

Selfridges is a great example of a retailer making a success of this approach. It offers its customers products that are luxury in nature, hard to source elsewhere and is a well-established brand that is recognised and valued for these qualities. And don’t rule out the lure of that bright yellow bag which loudly broadcasts these facts.

In order to survive, some department stores have developed innovative propositions designed to draw consumers into the store and deliver a different experience to the online purchase. Take John Lewis & Partners, for example, which has recently undergone a rebranding exercise to emphasise the unique partnership structure that forms the heart of the business. Its rebranding encompasses high street stores, the mobile app and the online shopping experience, with brand consistency across the board. The long-established retailer has, at the same time, made a considerable feature of improving customer service across all channels. It is now positioning itself as a leader in personalised customer experience, including personal shopping out of hours providing a minimum spend threshold is achieved.

The key to survival

As well as understanding who they are and being clear about what their unique offering is, department stores must be open to adapting their business models to incorporate new technologies that will help them remain competitive. Here they could learn from other high-street retailers that are launching innovative customer offerings to draw in customers.

H&M, for example, is developing unique services by putting new technologies at the heart of the business model. Recently the retailer has introduced new tech into their stores through things like ‘smart mirrors’ that allow customers to ‘try on’ outfits digitally. Through creating an interactive in-store shopping experience, the retailer is taking steps to set itself apart from the competition by adding customer value.

Leveraging new and intelligent technology to increase efficiency could be the key to department stores being able to develop their unique offerings. A comprehensive technology strategy can play a pivotal role in simplifying a business process and allowing a retailer to focus attention where it’s really needed. For example, introducing robotic process automation (RPA) into a traditional retail business would free up hours of staff time that can instead be used to focus on providing a frictionless start-to-finish customer experience.

Finding an objective, trusted partner who specialises in digital transformation is essential to follow this path. They will guide you to select the right processes to automate and the best technology products for your business without losing focus on the core requirement to generate customer value.

Securing the future

Despite recent high-profile collapses of department stores and other high street retailers, there is still very much a place for them within the retail landscape. This is because having a physical presence on the high street remains the best way to be able to deliver some forms of unique customer value, such as personalised shopping and the opportunity to browse a curated set of products.

In a highly competitive environment it’s now imperative that department stores concentrate on defining core purpose and focus the business and technology strategy on what makes them stand out from the crowd. This is no small undertaking and requires a holistic cross-business approach, but it’s clear that department stores that can successfully leverage technology to achieve their business goals will be the ones that remain relevant and profitable into the next decade. In fact, putting technology at the heart of the retail business will be fundamental to survival.

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